As long as you’re meeting basic legal and reporting requirements, how you manage your company’s accounting is up to you.
Depending on owner preferences and business structure, it’s possible to scale your accounting processes up or down in complexity, as it fits the business’ needs.
But that flexibility isn’t always a good thing. Some people have a natural tendency to overcomplicate processes, while other business owners inadvertently increase complexity by giving accounting-related topics too little attention. The latter category ignores everything associated with finance and accounting until there’s an urgent issue to deal with.
In both extreme cases, a measured amount of regular attention would go a long way towards simplifying your business’s accounting year-round. This way you can focus on growing your business and improving efficiencies, instead of on accounting crises.
Let’s take a look at a few ways to simplify your startup’s accounting.
1. Use Technology
Modern financial technology allows you to automate processes and reduce manual data entry, as well as producing reports using Artificial Intelligence (AI) or Machine Learning (ML).
While it’s not yet possible to automate everything, it is possible to reduce the level of human input required. A combination of AI and ML can take over repeatable process steps and basic categorization.
These AI and ML tools can take over repeatable process steps and basic categorization with surprising accuracy, especially for larger data sets.
With good data, you can also use predictive analytics to create some pretty accurate forecasts.
2. Track Your Business Spending
While it sounds basic, one unnecessary source of complexity is simply neglecting regular and consistent tracking of expenses and donations.
Instead of waiting until quarter- (or year-) end to put together your expenses and receipts, get in the habit of keeping track weekly or daily. Use a system to follow expenses as they occur – perhaps with a business credit card or with a specialized app. This also applies to miles driven using your personal vehicle that relate to business activities. It’s much easier to track these activities as they occur rather than after the fact when you’re unlikely to easily remember the required details.
3. Implement an Accurate Invoicing System
Prompt and accurate Invoicing is critical for collecting revenue for your goods and services. If you have a problem with invoicing, you’ll have a problem getting paid.
Inaccurate invoicing is especially problematic because it not only leads to delayed payments, it generates additional work for your employees and can frustrate customers. Thus, accurate invoicing eliminates the need for manual follow-up and corrections.
While it may take some time and effort upfront to implement your system, it will save you headaches on the backend and is an easy way to simplify your accounting.
4. Stay on Top of Your Payroll System
If you have employees, you need some type of payroll system. You can use one of the many available cloud payroll systems or hire an administrator.
Either way, you need to make sure the inputs are clean and up to date.
Employee information or tax law changes that go unnoticed can lead to frustration and complications down the road. Employees could be paid incorrectly (or not at all), which impacts goodwill with your employees.
5. Regularly Use P&L Statements
Are you on track to meet your goals? Do you have operational issues that need to be addressed in the near future? A monthly P&L lets you keep track of how the company is doing and hold you accountable to business goals.
Instead of running your business based on bank account balances and a feeling of how things are going, you can make data-driven decisions. Critical issues that arise can be more quickly recognized and properly addressed.
6. Plan for Tax Obligations
Aside from payroll and material costs, tax obligations are some of the largest expenditures a business can have. But unprepared business owners can put themselves in a very tight spot.
For example, if you haven’t properly planned for your quarterly tax payments, you might run into a scenario where you’re subject to underpayment penalties and interest. The IRS wants their money and won’t want to wait without penalizing you for it.
Setting aside a percentage of your monthly income can help you simplify your accounting by avoiding the need to quickly pull together a large amount of cash.
7. Concentrate on Improving Cash Flow
Cash is like the lifeblood of any business. Running low (or out) puts you in a very risky position. Not being able to meet your obligations can open you up to insolvency or force you to take loans at unfavorable terms.
Focusing on improving your cash flow grants you additional flexibility, allowing you to spend less time thinking about the accounting side of the business.
8. Work with a Startup-Focused Accounting Partner
Startup accounting doesn’t have to be overly complicated. But that doesn’t mean you should ignore the topic altogether. In fact, many of the complications surrounding startup finance and accounting are caused by a lack of attention.
Simplifying your accounting year-round can go a long way to saving you time and reducing your stress levels. Surely you could use that time for more valuable things, like focusing on growing your business or recharging your personal batteries.
Founder’s CPA can help you set all of that up and take some of the load off, freeing you up to work on things that truly matter to you and your business. Get in touch to see how we can help you get started.